ATO debt or a past default? How business-purpose lenders assess complex credit histories

Business-purpose lenders often look at the full picture, not just the credit score. This article explains how adverse history is assessed, what lenders focus on and how borrowers can present their situation clearly.

Why it's more common than you might think

Pressure on businesses is high. ASIC's annual data shows 14,153 companies entered external administration for the first time in 2025–26, down 4% from the previous year but still elevated. Construction was the most affected industry at 24.5%.

Businesses are also stretching their supplier payments. Equifax data shows the share of invoices between 1 and 30 days overdue rose from 6% to 7.9% in August. See SME loan enquiries are up 14%. And with the cash rate now at 4.85%, many otherwise sound businesses are carrying debts, including tax debts, that they wouldn't have had a few years ago.

What counts as "adverse history"?

Common examples include:

• Tax debts: outstanding ATO liabilities, sometimes under a payment arrangement
• Defaults: listed defaults from past credit, often from disputes or a difficult period
• Arrears: late payments on existing loans
• Past business failures: directors whose earlier companies entered administration
• Judgments or court actions: often linked to commercial disputes.

How business-purpose lenders look at it

Banks typically rely heavily on credit scores and standard policy rules. Business-purpose lenders tend to assess the whole scenario, focusing on four questions.

1. What's the security?

Property security is often the starting point. A quality property with a conservative LVR gives lenders more confidence than the credit history alone suggests.

2. What's the story?

Lenders want to understand what happened, why, and what has changed since. A default from a resolved dispute three years ago is very different from a pattern of recent missed payments.

3. What's the purpose?

Is the funding solving the problem, for example by clearing an ATO debt or refinancing expensive short-term debt? Or does it just postpone it? Funding that improves the borrower's position is easier to support.

4. What's the exit?

How will the loan be repaid? A property sale, a refinance to a bank once the credit history improves, or business cash flow? A realistic, evidenced exit is often the deciding factor.

ATO debt: a common scenario

Tax debt is one of the most common reasons business owners look for alternative funding. Interest charged by the ATO on overdue tax (the general interest charge) is no longer tax-deductible, which makes carrying tax debt more expensive than it used to be. Refinancing an ATO debt with a property-secured loan can consolidate the debt into one structured repayment plan, provided there's a clear way to repay the new loan. See ATO tax debt is rising sharply.

Lenders will typically want to see:

• the latest ATO statement of account and any payment arrangement
• an explanation of how the debt arose
• evidence that ongoing tax obligations are now being met
• a repayment plan for the new facility.

How to present your scenario

• Be upfront. Disclose adverse history at the start. Lenders find it out anyway, and surprises late in an application damage trust.
• Explain it briefly and factually. A short written explanation of what happened, what has been resolved and what has changed is often enough.
• Show the current position. Recent financial statements, bank statements and ATO statements show where things stand now.
• Have a credible exit. Explain how and when the loan will be repaid, with supporting evidence.
• Expect pricing to reflect risk. Loans for complex scenarios are usually priced above standard bank loans, and LVRs may be more conservative.

What doesn't work

Not every scenario can be funded. Lenders are cautious when:

• the funding would cover ongoing losses without any improvement in the business
• there is no realistic way to repay the loan
• information is incomplete or inconsistent
• the security is weak or the LVR is too high.

For brokers

• Gather the full story and documents before submitting. Complete applications get faster, clearer answers.
• Present adverse history with context, not apology.
• Match the scenario to a lender that assesses the whole picture, not just the credit score. See First mortgage vs second mortgage.

The Funding Door view

A difficult chapter in a business's history doesn't have to define its future access to funding. Business-purpose lenders that assess security, purpose and exit, not just credit scores, can often consider scenarios that banks decline. Every application is assessed on its own merits, and approval is never guaranteed, but a clearly presented scenario with sound security and a credible exit always deserves a proper look.